NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
In analysing a company's business model, which of the following best describes an 'economic moat' as used by research analysts?
An economic moat is a durable competitive advantage, such as a strong brand, cost leadership or high switching costs, that protects a company's profits and market share from competitors over a long period, which is why analysts value firms that possess one.
- AA durable competitive advantage that protects a firm's profits from competitorsCorrect
- BA temporary fall in raw material prices
- CThe fixed assets a company holds as collateral
- DThe statutory reserve a company must maintain
Explanation
An economic moat is a sustainable competitive advantage, such as brand, cost leadership, switching costs or network effects, that helps a firm earn above-average returns for long. The other options describe unrelated items: input prices, collateral and reserves.
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